Financial glossary
for new-age investors

Discover financial terms and learn new concepts.

Dividend Yield

A dividend yield shows how much a company pays out to shareholders in annual dividends as a percentage of its stock price. If you own a share of a company worth $100 and received a $2 dividend per share last year, your dividend yield was 2% ($2/$100 = 2%).

Downgrade/Upgrade/Negative Watch/Positive Watch

An upgrade or downgrade from a major ratings agency can be a big deal for a company, especially if they are near the line between “investment grade” and “high yield.” Before a company is formally upgraded or downgraded, it is often put on “positive/negative watch,” which is essentially a warning to investors that a rating change is going to occur unless the company’s financial situation changes.

EBITDA

EBITDA stands for “earnings before interest, taxes, depreciation, and amortization”, and is a key financial metric that gauges a company’s operational performance. It aims to offer a view of a company's operational profitability, excluding the effects of financing and investment decisions, and is often used as a proxy for cash flow generation.

Economies And Currencies

Global investors have a choice of where to invest their money and so aim to invest it in countries that offer them the best chance to make money. Typically, it’s easier to make money in an economy that’s growing: companies are probably going to sell more goods and services and their profits are more likely to increase. And so investors move investments into countries that are likely to do well (and less in those likely to do worse). In order to invest in a country, they must buy that country’s currency, which increases its value. Economies that are doing well are likely to see their interest rates go up – meaning that money in that country’s likely to earn a greater return by way of interest – and that, too, increases the value of the currency.

Economies Of Scale

This is when the cost of producing a good gets cheaper as the quantity produced increases, usually because the fixed costs are spread over a larger number of goods.

Effects Of Quantitative Easing

Quantitative Easing (QE) is when a central bank directly buys its government bonds. The idea is that – when a central bank has already cut interest rates close to zero – directly buying government bonds decreases their yields those bonds pay. Several other loans’ interest rates are based on the yield of government bonds – so, by depressing those yields, the central bank makes it cheaper for companies and people to borrow money than a low interest rate alone would. It’s hoped that the borrowed money will be used to do things that boost the economy (like buying machinery or hiring workers). Another impact of QE is that it could encourage investors to buy riskier investments. If the returns available from government bonds are low, then investors may be more likely to seek out riskier investments (like stocks) that offer higher potential returns. That tends to boost share prices, which feeds through to investors’ pockets – and, in theory, can spur economic activity. For the same reason, QE has been criticized for increasing inequality in the sense that it arguably benefits those that already own assets more than those that don’t.

Elliott Wave Theory

The Elliott Wave Theory is a form of technical analysis. It was developed in the 1930s by Ralph Nelson Elliott, who proposed that asset price movements follow cycles of repetitive patterns or “waves” driven by investor psychology. By analyzing these wave patterns, traders can forecast market trends and capitalize on potential opportunities.

Emerging Market

The best way to think about it is to think about all the “developed markets” like the US, Japan, Europe and some others. These tend to be the largest economies in the world and the most advanced. Emerging markets are, essentially, less advanced. In the case of India and China, they can be quite large, but are still “developing.” Emerging markets often exhibit higher growth rates than developed economies, often because they are starting from a lower base (like a startup company, it’s easier to grow than a large, established company). But they also have higher risk. That can be due to political risk (think coups) as well as economic risks (like a lot of foreign investors might take their money out).

Enterprise Value To Sales (EV/Sales) Ratio

The enterprise value to sales (EV/sales) ratio is a valuation metric that compares the total value of a company (i.e. its market capitalization plus its net debt) to its annual revenue. Essentially, it shows how much investors are willing to pay per dollar of a company's sales. A lower EV/sales ratio indicates a cheaper stock and a higher EV/sales ratio indicates a more expensive stock. Companies that are “richly” valued are worth a lot relative to their sales – that’s usually because their revenues are expected to increase quickly in the future and, therefore, investors are paying up for access to those future sales. Stocks with “cheap” valuations are usually mature or struggling companies, i.e. they are unlikely to exhibit much sales growth (although this doesn’t necessarily mean they are bad investments).

ESG (Environmental, Social, And Governance)

ESG – or “environmental, social, and governance” – is a set of tools and measures investors use to assess the ethical impact and sustainability practices of investments alongside their financial performance. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Together, these ESG factors may help investors to identify risks and opportunities in the companies they invest in. By integrating ESG criteria, investors aim for sustainable long-term financial and societal returns in their investments.